Private Credit and Lending Marketplaces for Accredited Investors

Compelling Opportunities in Private Credit

Private credit, like direct lending, has been blowing up lately, and it's got some potentially compelling opportunities for accredited investors. Traditional lenders have been stepping back from the commercial market, and that's where private credit comes in to save the day. This shift has opened up a perfect playground for accredited investors who want to spice up their portfolios and chase bigger returns.

Private lending has a number of benefits, one of which is its capacity to produce enticing risk-adjusted returns. When compared to publicly traded leveraged loans, private credit investments, particularly those in the form of senior and unitranche loans, often offer a higher level of illiquidity.

This premium offers the possibility of higher yields. The wider differentials that opportunistic, distressed, and subordinated debt may offer further boost the potential gain for investors.

Unlike traditional sources of financing, private credit investments offer borrowers freedom and a reliable execution process. Borrowers prefer the tailored terms and structures offered by private lenders, which may be changed to meet each borrower's unique requirements.

Private lenders offer a simpler and more effective approach. They eliminate the difficulties and ambiguities frequently present in club solutions or issuances on the public debt market.

Private credit investments may benefit investors as interest rates rise. This is why: The majority of private loans have fluctuating interest rates, unlike bonds. Therefore, if interest rates rise, borrowers wind up paying more in fees, which could result in larger profits for investors.

Borrowers may see higher interest rates, but overall, it won't be a major concern because they won't have to deal with the annoying expenses associated with public issuances. Investors typically pay the underwriting expenses in private transactions through call premiums and original issue discounts.

The private credit sector is experiencing an increase in opportunities. Due to the abundance of qualified borrowers and adequate finances, private lending is in high demand. Particularly, private equity professionals are all on it, using private credit to finance their leveraged buyout and merger and acquisition antics.

And what's this? Since private equity firms are sitting on piles of cash, there will be an increase in the requirement for funding, which bodes well for private credit.

Managing Risks in Private Credit

But it's important to recognize the dangers of using private financing. Moderate rises in interest rates may make some borrowers more likely to default; therefore, lenders must take this into careful account. Challenges can also arise from inflationary pressures and rising costs, especially for companies that are unable to pass those costs on to their clients.

Companies with high levels of leverage and debt are particularly vulnerable. Due diligence and disciplined investment structuring are therefore essential for successfully controlling risk in private credit portfolios.

To sum it up, private credit, especially direct lending, has become a pretty sweet deal for accredited investors. It has the potential for some attractive returns while offering flexibility in terms and a friendly atmosphere for getting deals done. ​​

Of course, there are risks involved, but with smart risk management and strategic investments, investors can seize the opportunities that private credit brings to the table.

The Growing Private Credit Asset Class's Evolution

In the area of alternative investing, private debt is a relatively recent phenomenon. Because traditional banks were afraid of riskier loans during the Global Financial Crisis, private lenders stepped up to the plate.

These private debt funds provide several interesting advantages to investors, such as higher yields when compared to traditional safe assets. Furthermore, private debt funds offer investors a diverse range of loan options across multiple industries. This allows investors to diversify their portfolios and find the risk/reward balance that suits their preferences.

Prior to the financial crisis, the majority of the funding for these transactions would have come from public debt markets or banks, either individually or collectively. During the crisis, regulatory changes were put in place to enhance the stability of the financial system.

As a result, the minimum size of public debt market offerings has been increased, effectively excluding all but the largest corporations from accessing the market. These modifications have also limited the amount of money that banks can lend.

These days, U.S. banks only cover around 10% of middle market financings, which is a big drop compared to what it used to be a decade ago. Even in the EU, banks used to dominate middle market financing, but their share has also decreased over time.

What Does Private Debt Mean?

Private debt, also referred to as private credit, is an alternative form of financing provided by funds rather than traditional sources like banks, bank-led syndicates, or public markets.

It plays a prominent role in well-established markets like the US and Europe, where it is commonly utilized to finance buyouts. However, private debt is not limited to buyouts and can also be used for purposes such as expansion capital or funding acquisitions.

The growth of private debt gained significant momentum following the Global Financial Crisis (GFC). As banks scaled back their involvement in leveraged lending and shifted their focus towards larger corporate clients, a void emerged in the market.

This void was effectively filled by private debt funds, which stepped in to provide much-needed financing to companies that were underserved by traditional lenders.

The private debt sector has experienced remarkable growth, with total assets under management exceeding $812 billion. This sector has attracted a diverse range of investors, with over 4,000 active participants contributing to its expansion.

The Benefits of Private Debt

● Rising Rates Benefit Investors: Private loans offer floating interest rates, which means that when interest rates rise, borrowers' interest payments also go up. This has the potential to increase returns for investors, setting them apart from bonds.

● Impact of Rate Increases: While index-rate floors may initially mitigate the impact of rate increases, it is expected that future rate hikes will have a more substantial influence on yields. This is particularly true as interest rates exceed the existing floors.

● Illiquidity Premium: When compared to publicly traded leveraged loans, private senior and unitranche loans have an illiquidity premium of roughly 150 bps to 300 bps. Premiums on opportunistic, distressed, and subordinated debt can be substantially higher.

● Lower Default Rates: Private credit has exhibited lower default rates in comparison to high yield bonds and leveraged loans. This has resulted in higher recovery rates and lower loss rates for investors in private credit.

Please note that while private credit has shown these trends, specific market-wide data for default rates in private credit may not be available.

The Risks Involved in Private Debt

One of the risks associated with private debt is the potential strain on borrowers' balance sheets brought on by higher interest payments on floating-rate loans, which might increase defaults. Even when borrowers start hedging their rate exposure, private lenders must still consider this risk.

Low GDP growth has historically had little impact on private company defaults compared to inflation. However, highly leveraged businesses face the risk of inflation, which magnifies the impact of slow growth and increases the probability of default.

Businesses with moderate leverage are less likely to default, but cyclical businesses face a higher risk of leverage spikes, which can lead to default. This highlights the benefits of conservatively structured non-cyclical credit in investors' portfolios.

Inflation poses significant risks to businesses that face rising costs but are unable to pass them on to customers. Higher energy prices, for instance, represent a danger to producers and service providers since they raise production costs while lowering consumer expenditure. Inflationary pressures have become more pronounced globally for businesses, consumers, and investors.

The illiquidity premium in private credit, especially in U.S. middle market loans, provides more favorable pricing when compared to leveraged loans. Emphasizing the importance of disciplined investment structuring is crucial in private loans. The agreed covenants and protections between borrowers and lenders play a crucial role in determining the risk of losses in the event of default.

Why Marketplace Lending Beats Banks as an Investment

Real estate developers, property repair professionals, and landlords all have one thing in common: they need outside funding for their initiatives. Traditional banks, on the other hand, often create obstacles for these professionals. Banks have stringent loan application requirements, making it difficult for real estate investors to obtain funding.

Furthermore, if granted, borrowers are bound to long-term mortgage terms that last 20 or 30 years. Marketplace financing, on the other hand, offers a feasible option that provides flexibility, frees up assets, and avoids long-term commitments to creditors.

Why Marketplace Lending Stands Out

When it comes to real estate investing, marketplace lending offers benefits that traditional banks simply cannot match. Here are a few crucial advantages to consider:

● Pool of financiers: Marketplace lending allows you to borrow from a diverse group of investors who believe in your project and want to see you succeed. Platforms like MCAFund.com bring together this pool of investors.

● Short-term agreements: Marketplace loans typically offer shorter terms, such as six or twelve months, giving you more flexibility. You can complete your project, repay the loan, and move on to new projects without being tied down for years.

● Simplified approval process: Unlike traditional banks, marketplace lending platforms may not require a credit check or solely rely on your FICO score. If you can demonstrate the ability to repay the loan, you have a better chance of getting approved.

● Multiple project funding: Banks are cautious about borrowers taking on too much leverage. With marketplace lending, if you can show that you have the means to offer returns on investments, you can secure funding for multiple projects simultaneously.

● Faster access to funds: While banks can have lengthy loan processing times, marketplace lending provides a quicker turnaround. Once approved, you can access the funds promptly, allowing you to complete your project sooner and move on to the next one.

● Smaller project financing: Marketplace lenders offer the advantage of funding smaller projects that may not meet the minimum loan limits of traditional banks.

● Flexibility in financing options: Marketplace lending platforms often provide more than just loans. If it suits your project, you can structure it as an equity offer, providing investors with a return on investment without the need to repay a loan. This flexibility is not typically offered by banks, and if available, it usually comes with additional costs.

Marketplace lending offers a great solution for real estate developers and other investors who value fast funding at competitive prices without being tied to long-term contracts. It's important to consider your options and conduct due diligence on the lender and their underwriting criteria before making a decision on your funding source.

To explore a list of private lenders that accredited investors should consider, keep reading!

Private Credit, Financing, and Loan Marketplaces

#1) MCA Fund

MCAFund.com is a platform that assists businesses in accessing fast and hassle-free business financing options. They offer unique products and funding approvals for new and established businesses by pooling funds from accredited investors.

At MCAFund.com, accredited investors have the opportunity to participate in MCA deals and contribute to the growth of businesses. The platform aims to provide a seamless experience for both businesses seeking funding and investors looking for investment opportunities.

What is an MCA?

Originally, a merchant cash advance (MCA) involved providing a business with a lump sum payment in exchange for a percentage of their future credit card and/or debit card sales. However, nowadays, the term "merchant cash advance" is used to describe various small business financing options.

These options are characterized by short payment terms, usually under 24 months, and small, regular payments made each business day. This is different from traditional bank loans, which typically involve larger monthly payments and longer payment terms. The term can refer to the purchase of future credit card sales receivables or short-term business loans.

To get in touch with the MCA Fund, contact them here or call 954-656-2110.

#2) Percent

Percent was founded with the vision of revolutionizing the world of alternative investments, making them more transparent, accessible, and liquid for all. Regardless of whether one is a hedge fund manager or an individual investor, the goal remains the same – to create a financial future that is within their control.

Through its innovative marketplace, Percent facilitates connections between investors and corporate borrowers, streamlining the investment process and portfolio management. The company is committed to simplifying the investment landscape and empowering individuals to make informed decisions about their financial journey.

● Customize your investment timeline: Earn up to 20% APY with flexible investment durations, ranging from one month to a few years. Reinvest your capital easily in a changing interest rate environment with shorter-duration options.

● Invest on your terms: Personalize your investment experience by setting your desired yield and minimum investment amount during syndication. Invest only when the investment aligns with your specified criteria.

● Designed for diversification: Expand your investment portfolio across various asset classes and geographical regions by selecting individual deals. Achieve rapid diversification with Blended Notes, which provide a broad range of investment opportunities.

● Transparency every step of the way: Experience upfront visibility and comparison of available deals through our advanced technology. Access comprehensive data on borrowers, deals, and market trends. Stay informed with performance tracking and surveillance reports. Transparency is at the core of our approach.

To get started, get in touch with Percent here.

#3) FinMkt

With FinMkt's API-driven system, lenders, merchants, and partners can take control of their future by leveraging a groundbreaking SaaS lending platform. FinMkt's advanced digital lending technology provides an effortless multi-lender platform.

This platform is specifically designed to meet the needs of banks, credit unions, alternative lenders, OEMs, and merchants in the home improvement, healthcare, and retail sectors.

● Fully Customizable: FinMkt offers a robust lending software that is flexible and supports multiple lenders and financing products. It provides a fully customizable and comprehensive solution that caters to various credit needs and spans across different industries.

● End-to-End & Modularized: FinMkt provides tailored solutions that are uniquely customized for each partner, offering scalability and the option for fully white-labeled, end-to-end or modularized solutions.

● Seamless Integration: FinMkt provides an easy-to-use point of sale financing platform that can seamlessly integrate with existing technology, fostering innovation and facilitating business growth.

Get in touch with FinMkt today.

#4) LenderMarket

Lendermarket is an online P2P investment marketplace that connects investors to loans from digital consumer finance companies across Europe. The idea behind Lendermarket was to make investing easier and more rewarding, regardless of location or capital.

With a team passionate about leveraging the digital world, Lendermarket was created as a borderless P2P marketplace. It is not just another asset management intermediary but an investment platform that brings trustworthy borrowers and investors together, offering fair returns and a controlled investment environment.

Lendermarket ensures investors' money is utilized with their best interests in mind, all without unnecessary fees. It's a contemporary P2P marketplace for investing in consumer loans.

Invest with confidence using our Buyback Guarantee: All loans on Lendermarket come with this protection, ensuring repayment if borrowers are more than 60 days overdue. Discover exclusive opportunities for higher returns, with an average annual return of 15.27% on our platform.

Join as an individual or company investor in just minutes, with no fees involved.

Conclusion

In conclusion, the rise of private credit presents a compelling opportunity for investors in today's evolving lending landscape. With traditional lenders stepping back, private credit managers have capitalized on strong demand and ample capital to selectively invest in high-quality borrowers.

While the potential for rising interest rates carries some default risks, the floating-rate nature of private credit investments can enhance investor returns. Additionally, the illiquidity premium and the role of private credit in financing mergers and leveraged buyouts further contribute to its appeal.

As a mature asset class, private credit is poised to continue meeting the demand for alternative lending solutions in the foreseeable future.